Are you a business owner looking to hire workers without Social Security Numbers (SSNs)? Workers can obtain an Individual Taxpayer Identification Number (ITIN) as an alternative.
By hiring these workers without SSNs you can prevent the Department of Labor, your State UI Department, and the Workers Compensation Board from taking action against you. You may not be familiar with ITIN, but this article will explain what it is, how your workers can obtain it, and the benefits of adding them to your payroll.
What is an ITIN?
What is an ITIN? An ITIN is an “individual tax identification number” that is issued by the Internal Revenue Service (IRS). It is used for individuals who are required to file a U.S. tax return but are not eligible for a Social Security Number (SSN).
What is the Main Purpose Of an ITIN?
It allows individuals to comply with U.S. federal income tax laws and fulfill their tax obligations.
What Can You Do with an ITIN Number as an Employer?
An Individual Taxpayer Identification Number (ITIN) is more than just a tax form necessity—it's a key tool for employers.
Here's what you can do with an ITIN number as an employer:
1. Legal Payroll Processing: ITINs allow you to legally pay employees who don't have Social Security Numbers, ensuring they're properly taxed and documented.
2. Tax Compliance: Employing ITIN holders keeps your business in line with U.S. tax laws, helping you avoid penalties and audits.
3. Workforce Diversity: Hiring ITIN holders broadens your talent pool, bringing diverse perspectives and skills to your team.
4. Employee Rights and Benefits: ITIN employees receive the same protections and benefits as other workers, including workers' compensation insurance.
5. Financial Inclusion: ITINs enable employees to open bank accounts and receive direct deposits, streamlining payroll processes.
6. Credit Building: ITIN holders can build a U.S. credit history, contributing to financial stability.
7. Legal Employment Verification: While ITINs don't grant work authorization, they do ensure that your payroll practices are compliant with tax laws.
8. Simplified Tax Reporting: Including ITIN workers on your payroll makes tax reporting easier and keeps your business compliant.
Understanding and utilizing ITINs can significantly impact your business operations, compliance, and employee satisfaction.
Can ITIN Workers Get On Payroll?
Yes! With Baron Payroll, your workers with an ITIN number can become employees and can be paid on your payroll.
Here’s the big issue, though. Most payroll companies will not let you add ITIN employees to your payroll - but we will. Baron Payroll has been paying ITIN workers on payroll for over twenty years, and we can do the same thing for you!
What Are The Benefits Of Adding ITIN Workers to Your Payroll?
1. Payroll Tax Compliance
Having workers with ITIN numbers allows you to pay them on payroll and comply with all the payroll tax regulations—which helps you minimize your financial risk related to potential audits from all the federal and state government agencies.
2. Department of Labor ("DOL") Compliance
Additionally, paying your workers on-the-books as ITIN employees rather than off-the-books, also helps you minimize your financial and compliance risk related to potential investigations from both the federal DOL and your state DOL. 3.
3. Workers Compensation Compliance
Another important benefit to you is if your worker is injured while on the job, they’ll have insurance coverage from your workers compensation policy. Otherwise, you’d be stuck and have to pay for these medical costs out-of-pocket.
Additionally, you will be in compliance with the workers' comp laws and avoid stiff fines and penalties (up to $1000 per day).
4. Cash Is Not King Anymore
And last but not least, most employers don’t have enough cash on hand every week to pay their workers off-the-books. This is a real problem these days and most employers would prefer not having to pay their workers with cash.
What's the Difference Between a SSN and an ITIN?
The primary difference between a Social Security Number (SSN) and an Individual Taxpayer Identification Number (ITIN) is that SSNs are issued by the Social Security Administration (SSA) to U.S. citizens, permanent residents, and certain other individuals authorized to work in the United States while ITINs are issued by the Internal Revenue Service (IRS) to individuals who are not eligible for an SSN but need to file a U.S. tax return.
Additionally, a SSN is used on W2 forms, while ITINs can be used only if the employee is not eligible for a SSN.
How Much Does It Cost to Get an ITIN Number?
There is no cost to apply for an Individual Taxpayer Identification Number (ITIN) from the Internal Revenue Service (IRS). However, if you choose to use an Acceptance Agent or Certified Acceptance Agent to assist you with the application process, they may charge a fee for their services.
How Do You Apply for ITIN?
In order to apply for an ITIN, the employee needs to complete Form W-7 and submit it to the IRS along with supporting documents that prove their identity and foreign status. The required documents can vary depending on the individual's circumstances but generally include original or certified copies of identification documents such as a passport, birth certificate, or national identification card.
Once the application is complete, the IRS will review it and issue the employee an ITIN if they meet all of their requirements. The IRS typically processes applications within seven weeks but can take longer in some cases.
How Can You Get an ITIN Number Fast?
The best way to reduce the processing time for an ITIN number is to apply in-person at a designated IRS Taxpayer Assistance Center (TAC) or Certified Acceptance Agent (CAA).
While in-person you’re able to ensure that the application is completed accurately and all required documents are submitted with the application.
Which can help prevent delays or rejections due to missing or incorrect information.
Do ITIN Numbers Expire?
ITIN numbers do expire if they are not used on a federal tax return for three consecutive years. This means that an ITIN holder who did not file a federal tax return for three years in a row will have their ITIN expire on December 31 of the third year.
To renew an expired ITIN, an individual must submit a new W-7 form along with all required supporting documents to the IRS. The renewal process can be completed at any time, even if the individual did not file a tax return in the year the ITIN expired.
How Do You Verify an ITIN After Issuance?
In order to verify that an ITIN is valid, employers can contact the IRS directly or use a trusted third-party verification service. The employer should make sure that the employee's name, date of birth, and address match what is provided on their application before adding them to payroll.
How Do You Check ITIN Status Online?
Unfortunately, the Internal Revenue Service (IRS) does not currently offer an online tool for individuals to check the status of their ITIN application. However, there are a few ways to check the status of your ITIN application:
- Call the IRS: You can call the IRS toll-free number at 1-800-829-1040 and speak to a representative to inquire about the status of your ITIN application.
- Check with your CAA or Acceptance Agent: If you applied for an ITIN through a Certified Acceptance Agent (CAA) or Acceptance Agent, you can check with them to inquire about the status of your application.
- Wait for notification from the IRS: The IRS will send a letter to the address listed on the ITIN application once the ITIN has been assigned or if additional information is needed. The letter will provide the status of the application and any further instructions.
It is important to note that the ITIN application process can take up to 11 weeks or longer during peak tax season, so it is recommended to wait at least 11 weeks after submitting the application before inquiring about the status of your ITIN application.
Can My Employees Work Legally with an ITIN?
Can you hire someone with an ITIN number? An ITIN does not grant an individual the legal right to work in the United States.
However, individuals with an ITIN may be able to obtain work authorization through other means, such as obtaining a work visa, green card, or employment authorization document (EAD) from the U.S. Citizenship and Immigration Services (USCIS).
In some cases, individuals with an ITIN may be able to work legally as an independent contractor or self-employed individual as long as they comply with all applicable tax laws and regulations. Employers should do their due diligence to ensure that employees have the necessary authorization to work in the United States before allowing them to begin working.
Can I Issue a 1099 to Someone with an ITIN?
Yes, you can issue a 1099 to someone with an ITIN if they have provided you with their ITIN on a W-9 form. A 1099 is used to report various types of income earned by non-employees, such as independent contractors, freelancers, or other self-employed individuals, to the IRS.
When issuing a 1099 to an individual with an ITIN, you should use the same process as if you were issuing a 1099 to an individual with a Social Security Number (SSN).
You will need to obtain the individual's name, address, and tax identification number (ITIN), along with the amount of income they earned during the year.
Can ITIN be Used On a W2?
Yes, an ITIN can be used on a W2 form. When an employee who is not eligible for an SSN is added to the payroll, they will need to use their ITIN in order to accurately report their income and pay taxes.
And that’s it!
If you found this article helpful, here are some others you might like:
- Can I Hire Someone with an ITIN Number?
- How Much Do Payroll Services Cost?
- Why are my W2 Wages Lower Than my Salary?
- How to Choose the Best Payroll Company for Your Small Business
- The Pros and Cons of Paying Employees with Payroll Paycards
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